CALGARY, Alberta, Nov 8 (Reuters) - Canadian Natural Resources Ltd gave the green light to a new C$5.7 billion ($5.7 billion) oil sands processing plant on Thursday, but it failed to cheer investors after the company reported weaker-than-expected third-quarter results, prompting a 3 percent drop in the shares.

Canadian Natural, the country’s largest independent oil and gas producer, faced unusually frank questions on a conference call about its weakened stock price and its prospects. It is dealing with low heavy oil and natural gas prices and is trying to iron out operational problems at its Horizon oil sands plant in Alberta.

The company blamed a 57 percent drop in earnings on lower realized oil and gas prices and it chopped capital spending by C$230 million, bringing the year’s budget cuts to C$910 million, or 12 percent.

It and partner North West Upgrading also sanctioned the first 50,000 barrel-a-day phase of their oil sands refinery near Edmonton, a project set for completion in 2016.

Canadian Natural is the major investment of Calgary financier Murray Edwards and has long been viewed as one of the industry’s most solid holdings due to a record of growth, hands-on management of extensive assets and focus on cost control.

But on Thursday, participants on a conference call to discuss the third-quarter results asked executives if a major stock buyback might be in the offing, or even if they had given thought to splitting the company up, to boost market value.

The stock closed down 93 Canadian cents at C$28.02 on the Toronto Stock Exchange, well off its 52-week high of C$41.12 set in February.

An analyst asked vice-chairman John Langille for his views on the weakened price.

Langille said deeply discounted heavy oil prices had pressured the shares, but coming expansions of pipeline capacity to the U.S. Gulf Coast were expected to bring relief next year. He also said Horizon production had been reduced by planned and unplanned maintenance outages, as well as “pro-active” upkeep, during the quarter. The operation was shut through much of 2011 following a devastating fire.

“I think we have to get some credibility back on running our Horizon, our mining project,” Langille said. “We have a very good process in place to get to there and I think, again, we’re dealing with an asset that’s going to last us 40-plus years and we have to make sure that we do it right to make it last that long.”

Langille said the company is not considering a split-up to alert the market to the value of its assets, which also include extensive natural gas properties and international holdings.

“We think in the long-term, it’s better to have a diversified portfolio and we will use our business model to develop that portfolio over time and ultimately return a much larger return to shareholders.”

Reliability at the 115,000 barrel a day Horizon project is the key to a rebound, Morningstar analyst David McColl said. “That’s the operational thing that is hanging on the stock. I‘m still looking for 12 to 18 months solid operation, and this probably makes me want to reset the clock on that,” McCool said.

PRODUCTION OUTLOOK TEMPERED

In the third quarter net income fell to C$360 million, or 33 Canadian cents a share, from year-earlier C$836 million, or 76 Canadian cents a share. Analysts, on average, had expected 50 Canadian cents according to Thomson Reuters I/B/E/S.

Cash flow, an indicator of the company’s ability to pay for its expansion plans, fell 19 percent to C$1.43 billion, or C$1.30 a share, for the third quarter.

Production rose 9 percent to 667,616 barrels of oil equivalent a day.

The company said it expects to produce 452,000-460,000 barrels a day of oil and gas liquids a day in 2012, down from its previous forecast of between 454,000 and 474,000.

Canadian Natural also cut its output forecast for Horizon due to the 12 days of maintenance last month.

Meanwhile, the company and privately held North West said they intend to start building their oil sands facility next spring.

The plant, which has been on the drawing board for eight years, will process extra-heavy crude from the tar sands into low-sulfur diesel fuel and other petroleum products. Capacity could eventually be expanded to 150,000 barrels a day.

Canadian Natural and North West plan to produce ultra low-sulfur diesel and other petroleum products at their refinery, rather that just synthetic oil that would be shipped to other North American refineries. That will help shield it from some of the competition from surging light crude output elsewhere, such as the North Dakota Bakken.

In addition, the Alberta government, as part of an initiative to foster more valued-added processing within the western Canadian province, will supply 75 percent of the feedstock for the plant with crude it gets in lieu of cash royalty payments. Canadian Natural will supply the rest from its own production. The processing agreements have 30-year terms.